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Study: Many Health Plans Not Affordable

Many companies could run afoul of the mandate to provide affordable health-care plans, says a new study.
Alix Stuart, CFO.com | US
May 3, 2010

Nearly 40% of employers may be at risk for violating the Patient Protection and Affordable Care Act's (PPACA) mandate that company health-care plans be affordable, according to a recent Mercer analysis of close to 3,000 employer-sponsored health plans.

And that risk is not confined to small companies, which historically have had less-rich health benefits. Some 30% of firms with 500 employees or more, and 20% of those with 20,000 or more, could have to change their plans or pay a penalty.

While those figures are admittedly estimates, based on averages that may or may not apply to any given individual, the figure was surprisingly high, given that many companies so far haven't paid much attention to the affordability requirement, says Beth Umland, director of research for health and benefits at Mercer.

The PPACA contains some specific mandates as to what affordable health insurance should look like, in that as of 2014, companies must offer plans in which employees' contributions are no more than 9.5% of their household incomes. If a company fails on that measure, and employees apply for government assistance through the yet-to-be-built health insurance exchanges, the company will be fined $3,000 per affected employee. (The fine drops to $2,000 after the first 30 employees).

The law, however, is missing some key details that allow companies to figure out the affordability equation. For one, most employers have no way to ascertain an employee's entire household income, absent data from the Internal Revenue Service or the employee. Also, the law does not specify whether all the insurance plans an employer offers must satisfy this definition of affordability, or just one of them.     

For the purposes of its analysis, Mercer weighed the employee contribution to a company's most-subscribed insurance plan against the company's average full-time employee salary, provided to them through an annual survey. In reality, some companies are considering taking the very conservative approach of assuming that an employee's individual income is the household income, says Umland.

Other companies will take a wait-and-hope approach, eschewing estimates of household income in favor of waiting to be notified by a health exchange that one of their employees has applied for help before making changes, says Neil Trautwein, a health-care expert at the National Retail Federation. (The retail industry is particularly affected by the bill's provisions, since it relies heavily on part-time workers who often were not provided with health-care insurance.)

Either way, experts say the level of health coverage would likely degenerate compared with current levels, in order to make the plans cheaper. Particularly if all plans must be affordable, "you'll probably see the level of coverage going down," says Umland, with employers making additional, richer coverage available for workers to purchase with aftertax dollars.

The law does require a minimum level of coverage — specifically, that health insurance plans cover 60% or more of medical costs — but most appear to be well within that constraint, says Umland, offering plenty of leeway for downgrading.




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